Tuesday, January 27, 2009

Mr. President...Tear Down This Stimulus!

5) University of Chicago economist and Nobel laureate Gary Becker doubts whether all this stimulus spending will do much to lower unemployment: "For one thing, the true value of these government programs may be limited because they will be put together hastily, and are likely to contain a lot of political pork and other inefficiencies. For another thing, with unemployment at 7% to 8% of the labor force, it is impossible to target effective spending programs that primarily utilize unemployed workers, or underemployed capital. Spending on infrastructure, and especially on health, energy, and education, will mainly attract employed persons from other activities to the activities stimulated by the government spending. The net job creation from these and related spending is likely to be rather small. In addition, if the private activities crowded out are more valuable than the activities hastily stimulated by this plan, the value of the increase in employment and GDP could be very small, even negative."

In other words, it doesn't help to create 500,000 construction jobs if there are only 100,000 unemployed construction workers. How many unemployed bank employees do you think will apply for the other 400,000? Knowing that those jobs may--and should--go away in a few years?

The more I hear about this "Stimulus Package" the more I think it's a smoke screen to get a bunch of other things pushed on America that might not have had a chance under better circumstances. Obama claimed he'd oppose any bill with pork in it, and yet this bill is designed in such a way that nothing is pork, so that's an empty threat.

The idea is to jump-start "aggregate demand," according to traditional Keynesian precepts. Milton Friedman, on the other hand, taught us that government spending and tax handouts do not stimulate demand, because every dollar doled out by government must be first taken in by taxes, borrowing or other spending cuts. The net effect on aggregate demand is zero.

Read the whole thing. He gets quite detailed on some of the specific points.

It's a big enough concern that Obama and his team of experts are proposing all this in the first place. It's a bigger concern that they've let Pelosi and Reid write the details. It's an even bigger concern still that the conservatives aren't offering any better plans. They've had time, since the Democrats didn't ask for any help in writing their plan.

In short, our ship is sinking. Obama wants to bail with a very large sieve. Pelosi and Reid want to use a hose to pump the water from one deck to another. The GOP is standing around wringing their hands hoping no one will ask for their opinion.